Increasing the commercial differential would result in a weekly rates rise of $9.32 for a median commercial ratepayer. Photo / Andrew Warner
The timing of a proposed massive hike in Tauranga's commercial rates could not be worse, say local commercial real estate and business sector leaders.
The median 11 per cent commercial hike has been labelled "unfair" and "irresponsible", with business owners - not their landlords - expected to bear the brunt while trying to survive from the Covid-19 downturn.
Tauranga mayor Tenby Powell acknowledged the timing was not ideal but said the rise was needed to help fund projects to stimulate the region's economy, and to bring Tauranga more in line with other cities.
In its revised draft Annual Plan, approved last week, the council proposed to continue the process started in 2018 to shift more of the city's overall rates burden on to the commercial sector.
Increasing the commercial differential to 1:1.2 would see businesses pay $1.20 in general rates for every $1 paid by homeowners for properties of the same value.
It also proposed reducing the fixed portion of rates and a general rates increase.
All up, the average rates rise would be 4.7 per cent, but the median residential ratepayer would see a 1 per cent increase compared to 11 per cent - $9.32 a week - for the median commercial ratepayer, and up to 24 per cent for top-value ($25m plus) properties.
Ray White Commercial Tauranga managing director Philip Hunt said, in his view, it was "irresponsible" and "utterly unfair" in the current market to increase commercial rates.
"It is going to send some businesses further into the wall or into further difficult situations."
Hunt said he was hearing the same concerns from businesses and new businesses wanting to relocate to Tauranga and the CBD.
Bayleys Commercial Tauranga sales manager Mark Walton said the timing could not be worse.
"This will have a significant impact on business owners in a time when there is already so much uncertainty around business confidence and viability."
Walton said in most cases the lease agreement made tenants or business owners responsible for the rates payment, not the landlord.
"This will be a significant increase to their business costs and will impact their bottom-line profitability when many are already fighting for survival."
A commercial rates increase could impact vacancy rates in Tauranga's CBD, Walton said.
"If anything, some commercial rates relief in the Tauranga CBD would be beneficial while businesses are doing it tough until the regeneration of the CBD occurs and economic confidence stabilised."
Tauranga Chamber of Commerce chief executive Matt Cowley said issues facing the business community included traffic congestion, the CBD, and the availability of the developable land.
"If the council develops a robust plan, and businesses have faith that the councils will implement the plan, then businesses may be more open to moderate rates increase."
In his view, however, that was not yet the case, he said.
Cowley said any additional revenue from commercial rates should be focused towards speeding up growth-related infrastructure projects, but it wasn't clear how that extra cash would be invested.
"It is up to the council to rebuild the business community's trust before it proposes such a massive increase to the commercial rates."
Cowley said the council needed to show it was in touch with the business owners post-Covid-19 recovery.
"Any increase in commercial rates needs to be sustainable."
Priority One chief executive Nigel Tutt said lowering the fixed charge - the Uniform Annual General Charge - would have the most impact of the proposed changes.
"While it helps out smaller ratepayers, it also is the cause of some large percentage increases for bigger properties.
"The quantum of increases for larger properties will surprise, however, particularly those where properties are multi-tenanted and the rates are passed on to small businesses."
Mainstreet organisation Downtown Tauranga chairman Brian Berry said there was a "misconstructed perception" that because a commercial or industrial property owner had a valuable asset that rates increases were more affordable.
The cost of rates, as well as insurance and compliance costs, was usually passed on to businesses and tenants.
"Those businesses that will bear the brunt of the proposed rates increases," he said.
Berry said most businesses' profitability was expected to be under pressure for the next two years.
"To significantly increase the fixed costs for businesses via rates increases is unfairly placing the burden on the business sector and especially when there are proposed reductions for lower-priced residential properties and reasonably minimal increases for other residential properties."
Greerton Village Community Association manager Sally Benning said the proposed rates rise followed a "catastrophic time" for Greerton business owners post-Covid.
"Whilst we understand that rates have not increased as maybe they should have done in recent years, this is just another tough pill to swallow right now."
Tauranga mayor Tenby Powell said he believed all council elected members acknowledged the timing of the proposed commercial rates rise was "far from ideal".
"We are acutely aware that many commercial ratepayers are facing difficult times as a result of the pandemic lockdown and alert level restrictions, and the ongoing recession, which the community and the country must claw our way out of together.
"To help our community recover, the council has to be prepared and able to invest with the Government in projects, which will stimulate our economy, provide real local employment and deliver lasting benefits for the city.
"To do that, we have to have revenue and some of that revenue will have to come from rates."
Powell said it was only fair to point out Tauranga's commercial ratepayers contribute far less to the city's rates income than those in other major New Zealand cities.
"Commercial rates make up 16 per cent of Tauranga's general rates revenue – in every other major city, the commercial share of general rates is at least double that figure."
Responding to the proposed rise being "unfair" and "irresponsible", Powell said commercial ratepayers typically benefit more from infrastructure and population growth than other ratepayers do.
"And they will clearly benefit more from the economic growth we're looking to stimulate, in partnership with the Government.
"While it's not an argument to justify introducing a differential, having been a commercial ratepayer myself, I know that businesses have their rates GST refunded and can use their rates expense to offset tax."
Powell said the council's 2021 infrastructure investment plans targeted transportation improvements, revitalising the CBD and addressing "our chronic lack of developable land".
"We need the business sector to work with us to make progress on those issues, part of which is paying a fair share of the revenue we need to underwrite the investment involved."
The council has also been served with judicial review proceedings.